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Low Cost Carriers Opportunities and Risks for Cities and Regions

Low Cost Carriers Opportunities and Risks for Cities and Regions. Wolfgang Kurth 17. November 2005 FH Bad Honnef. Agenda. LCCs in Europe Opportunities for Cities and Regions Risks for Cities and Regions Conclusions.

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Low Cost Carriers Opportunities and Risks for Cities and Regions

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  1. Low Cost Carriers Opportunities and Risks for Cities and Regions Wolfgang Kurth 17. November 2005 FH Bad Honnef

  2. Agenda • LCCs in Europe • Opportunities for Cities and Regions • Risks for Cities and Regions • Conclusions LCCs in Europe

  3. PIONEERSTAGE TRANSITION RAPID GROWTH STAGE TRANSITION MATURE STAGE U.S. and Europe VOLUME/GDP GDP Latin America Middle East Asia Volume Africa TIME Business Environment

  4. Low Fares Stimulate Demand For what reason would you fly more often? 50% 40% 41% 30% 20% 17% 10% 11% 11% 8% 8% 6% 0% upgrades schedule safety low fares more safety others ground FFP´s board Source: IATA Online Survey 2003

  5. Forecasts Are Optimistic Forecasts for the European Low-Cost Market 2002–2009F Marktetpotential GermanLow-Cost Segment CAGR 30% Optimistisch Schätzung unter Anwen-dung US und UK Marktanteile & Reisehäufigkeit auf die deutsche Population Anzahl der Passagiere von Ryanair und easyJet auf Basis der Kapazitätsankün-digungen PAX(Mio) PAX(Mio) 19% 15% Pessimistisch Pessimistisch 1 Pessimistisch: Anzahl der No-Frills-Reisen in Europa erreicht derzeitiges UK / Irland Niveau (0.25 Trips / Capita) in 8 Jahren (Anzahl der Passagiere = 72MM) 2 Optimistic: Anzahl der No-Frills-Reisen in Europa erreicht das derzeitige Nivaeu in den U.S.A. (0.5 Trips / Capita) in 8 Jahren (Anzahl der Passagiere = 195MM) Quelle: Analystenreports, HLX-Schätzung, Monitor Group Analyse

  6. LCC Routes 2001 Caption: Ryanair easyjet Volareweb bmi Baby Hapag-Lloyd Express Germanwings Sterling Skyeurope jet2

  7. LCC Routes 2002 Caption: Ryanair easyjet Volareweb bmi Baby Hapag-Lloyd Express Germanwings Sterling Skyeurope jet2

  8. LCC Routes 2003 Caption: Ryanair easyjet Volareweb bmi Baby Hapag-Lloyd Express Germanwings Sterling Skyeurope jet2

  9. LCC Routes 2004 Caption: Ryanair easyjet Volareweb bmi Baby Hapag-Lloyd Express Germanwings Sterling Skyeurope jet2

  10. LCC Routes 2005 Caption: Ryanair easyjet bmi Baby Hapag-Lloyd Express Germanwings Sterling Skyeurope Jet2 etc, etc

  11. Growth Is Triggered By „New“ Passengers Split of “new” Passengers Split of LCC Customers Share(%) Sharel (%) Quelle: NFO Infratest, 2002; Monitor Group Analyse

  12. secondary airports continental hubs intercontinental hubs Growth Of Secondary Airports (Basis: Pax 2002/2003) European Union, secondary airports 9,7% North America European Union Asia/Oceania 6,2% 4,5% with- out LCC home base with LCC home base Source: ITA Daten 2002/3, Analysis ADL Aviation Competence Center

  13. Agenda • LCCs in Europe • Value for Cities and Regions • Risks for Cities and Regions • Conclusions Opportunities for Cities and Regions

  14. Direct effects Indirect effects Catalytic effects LCCs – Generators Of Regional Economic Prosperity Mainly jobs at airlines, handling & related aviation acitivities (as being roughly half oftotal job effects). Total on-site employment of regional airports between 850 – 1200. 1000 jobs created for every 1 million passengers through an airport. Regional airports support roughly 1200-1800 jobs within the regional or local economies. Studies have found regional airports to have comparable economic effects to several mid-size manufacturing plants. Mainly effects stemming from attraction and detention of inward investment and the stimulation of inbound tourism. Especially the enhancement of competitiveness to local economies as well as the attraction of business and leisure passengers leads to higher generation of incomes and employment.

  15. EasyJet’s direct operations con-tribute approximately £66 millionto local gross income levels, supporting a total of 1,770 jobsin the aviation sector and supply-chain companies. These levels of direct expen-diture and employment provide income and employment for others. Taking all these wider effects into account, EasyJet’s operations add £120 million to local incomes and support a total of 3,185 local jobs. Source: National Economic Research Associates, London 2000 Direct Impacts Of LCCs LTN Passenger development

  16. Routes from London-Stansted launched in April 1998 and from Brussels-Charleroi in April 2001. Annual passengers of both routes account for roughly 250.000 visitors, 90% of which are non-French Stimulus by London route only is estimated to account for € 215m, only € 6,5m of which related to direct effects at the airport. A total of 2.800 new jobs is estimated to be related to this new route and it´s consequences. Prices of real estate are estimated to have risen by 25% between 1998. LCCs contribute to regional development and economic development, directly and indirectly. Source: Financial Times, Dec12, 2002 Catalytic Impacts Of LCCs Carcassonne

  17. LCCs Generate Incoming-Traffic • Approx. 25-30 per cent of the passengers on the LCC routes to • Germany are Incoming Passengers

  18. LCCs Affecting Employment, Income and Value Creation, Example CGN At Airport Catchment Airport Total + = Jobs 1,766 2,650 4,416 = + 123 Mio. € 49 Mio. € 74 Mio. € Income = + 239 Mio. € 143 Mio. € 96 Mio. € Value Creation Source: „Die regionalwirtschaftlichen Auswirkungen des Low-cost Marktes im Raum Köln/Bonn“, IfV Universität Köln, 2004

  19. Cost And Productivity Benefits For Corporates, Example CGN Avergae Savings Savings Per Trip Corporates With Benefits Cumulative Savings % of Average Trip Costs Saving 86% 15,7% 242 € 87,3 Mio. € Fares LCC Saving Hotac and 63,7% 8,9% 66€ 23,7 Mio. € Travel Expenses Saving 2,1h 755.000 h 68,2% 3,2 % Working Hours 59€( 20,7 Mio.€ 2) Fare Reduction 63,8% 5,2% 58€ 15,9 Mio. € (3) FSAs Total 147,6 Mio. € Savings Anmerkung (1): Basis: all corporates withh LCC business travel (2): Basis: average hourly rate 28 € (3): Basis: all corporates with FSA business travel. Quelle: Unternehmensbefragung IfV Köln.

  20. Tax Effect By LCCs, Example CGN Incremental Tax Revenue in Mio. € Tax Revenue Federal Republic 76 Mio. € Tax Revenue State 70 Mio. € Tax Revenue Community 21 Mio. € Total Tax Revenue 167 Mio. € Quelle: „Die regionalwirtschaftlichen Auswirkungen des Low-cost Marktes im Raum Köln/Bonn“, IfV Universität Köln, 2004

  21. Distribution Trends

  22. Destinationmarketing: www.hlx.com

  23. Destinationsmarketing: www.hlx.com

  24. Destinationsmarketing: www.lufthansa.com

  25. LCCs „Own“ The Customers Booking Sequence:1st flight -2nd hotac simultanously 1st hotac - 2nd flight

  26. Carinthia On HLX Website And Vice Versa Website Performance • Page Impressions: 12,6 mio • Page Visits: 1,8mMio • Newsletter-Abos: >500.000 • Conversion-Rate: 10 % (April 2004)

  27. www.kaernten.at

  28. Non Co-Ordinated Approach

  29. „Flights For Free“

  30. „Flights For Free“

  31. Market Share Region Brussels area 25% N Belgium 19% S Belgium 18% Netherlands 17% 8% Luxembourg 7% France 6% Germany Catchment Charleroi

  32. Per 1 mio passengers per annum on 12 routes…. Ryanair pays to Charleroi Airport:€ 2.0 mio airport fees and handling charges Charleroi Airport pays to Ryanair:€ 1.9 mio Marketing Incentive for new routes € 2.0 mio Marketing Support€ 1.5 mio Support for infrastructure and recruitment Total costs for the airport: € 3.4 mio or € 3.4 per passenger Incentivprogram For Ryanair Quelle: Aviation Strategy, July/August 2001, S.3

  33. Agenda • LCCs in Europe • Opportunities for Cities and Regions • Risks for Cities and Regions • Conclusions Risks for Cities and Regions

  34. Unit Costs vs. Stage Length 25 20 15 10 5 0 Regional Airlines SK Scheduled Airlines AZ AF US LH BA KL AA Cents / ASM EasyJet UA AS IB Low CostCarriers NW CharterAirlines CO AirT TW AWA Ryanair ATA SWA DL Britannia 0 200 400 600 800 1.000 1.200 1.400 1.600 Average Route Length (Miles) ASM: Available Seats Miles Source: CASM Form 41, Air Transp. World June 2001 issue, Stage length data from the Airline Monitor Nov. 2001 issue; AirTran data Air Tran 10-Ks BAH Analysis

  35. Unit Costs Decrease With Stage Length Break Even Yield Curves Trip costs increase with stage length. Unit costs decrease with stage length or aircraft size. Break even yield increases with stage length. Break even yield decreases with LF. Revenue/Segment (€) 1,396 km 1,075 km 698 km 467 km Load Factor (%) Note: Yield Curves include costs of Airports, Ground-Handling, TNC, En Route, Fuel and ACMI (1,980 and 1650 EUR/BH respectively) Source: TUI Data, Press, Company Reports, Company Website, Broker Reports, EU, AEA, Monitor Analysis

  36. St. Petersburg Helsinki Oslo Tallinn Stockholm Moscow Minsk HANNOVER Shannon Warsaw London STUTTGART Paris Budapest Bucharest Belgrade Dubrovnik Rome Barcelona Madrid Lisbon Athens Palermo Algiers Malta Stage LenghtsHAJ vs STR • Boeing typical airline rules • Taxi times not included • 85% annual winds • 3% airways allowance

  37. ca. 560 Euro Incremental Costs Caused By Geo – Strategic Disadvantage A/P 2/3 A/P 1 DOC Avg. Costs/Bhr A/P 3 A/P 1 A/P 2

  38. HAJ-NAP vs. STR-NAP At 70% LF: geo-strategic disadvantage HAJ vs. STR app.ca. 5 Euro/Pax

  39. Not All Destinations Are Equally Atttractive 33% Hamburg Berlin 35% Hanover 30% 26% Cologne 27% Stuttgart

  40. Catchments Are Affected By Competition Leeds/Bradford Liverpool Liverpool East Midlands East Midlands Birmingham Luton Luton Catchment for: East Midlands - Barcelona Frühjahr 2002 (bmibaby) Catchment for: East Midlands - Barcelona Frühjahr 2003 (bmibaby and easyJet)

  41. HAM TXL/SXF HAJ CGN STR Primary vs. Secondary Airports Fare Differential Lübeck Parchim Trip Distance to primary A/P The higher the fare differential the more attractive secondary airports can be. Weetze Kassel-Calden Baden-Baden

  42. Legacy Carriers Are Cutting Back Cardiff/Wales (weekday deps) April 2002 British Airways* 12 KLMuk 5 Manx 1 Ryanair 1 Air Wales 1 ---- 20 April 2003 bmibaby 11 KLMuk 5 Air Wales 3 Ryanair 1 ---- 20 Belfast International (weekday deps) April 1998 British Airways* 19 British Midland 12 Jersey European 4 KLMuk 3 Sabena 1 Aer Lingus 1 ---- 40 April 2003 easyJet 35 bmibaby 4 British Airways* 4 Eastern 1 British Northwest 2 ---- 46 * including franchises

  43. The Challenge Incentives Airport LCC Passengers Tourism Organisation ? Guests Touristic Value Creation Tourism Industries

  44. Kärnten Werbung (legal entity, major shareholder State Government) provides certain incentives and support to LCCs and gets re-financed through „Fremdenverkehrsabgabe“ Tourist Fee to be paid by tourism industries to Local and State Government „Nächtigungstaxe“ Overnight Tax to be paid by hotels, B&Bs to Local and State Government Total Income: app. € 20 mio (est) Tax Financed Marketing

  45. Touristik-AG

  46. Regional „Airline“

  47. LCCs stimulate the demand but frequency and days of service are of paramount importance. Attractivity of destinations de-termines the balance of the traffic flow LCCs have very different business models …. More Challenges

  48. Incentives have to be based upon careful evaluation o follow the rules o stimulate Incoming Traffic o take into account the existing route portfolio o take into account the existing carrier-portfolio o „stretch“ the average stage length The Home Page of LCC is perfect to market touristic services (hotel, entertainment, Guided Tours etc) Catchments of LCC - airports may be influenced by other services …. More Challenges

  49. Agenda • LCCs in Europe • Opportunities for Cities and Regions • Risks for Cities and Regions • Conclusions Conclusions

  50. Airports, cities and regions don‘t have necessariy the same interests!! A strong and co-operative partnership between Low Cost Airline and tourism organisation/-industrie is pre-requisit for a significante stimulation of the touristic value creation. Know how and experience are key for a realistic evaluation of LCC-services. Key Success Factors

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